Understand (CD) Certificate of DepositUnderstand (CD) Certificate of Deposit

Understand (CD) Certificate of Deposit, Pros, and Cons

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Deposit money in one of the high-yield CD-certificate of deposit savings that help to generate a constant and regular income, rather than just leave your cash in the bank with a low-interest rate. This is true if you have cash reserved, and plan to create 6 months cd rates at banks. Then high-interest CD saving could be considered an ideal solution to generate extra cash.

In particular, most online banks or financial institutions have a cross range of CDs available for short-term saving such as 1-year CD rates, and 6 months CD rates, which are designed to suit your personal financial situation and needs.

For further information about different types of CDs, how it works, and CD’s pros and cons, you should continue to read the full article to get familiar with this type of specific investment.

1. What is a CD ( certificate of deposit)?

2. How does a Certificate of deposit (CD) work?

3. Best types of Certificates of Deposit

4. Certificates of Deposit’s Pros and Cons

Key Takeaways

  • Certificates of deposit offer a better interest rate than those traditional bank savings accounts.
  • There are different types of certificates of deposit such as 6 months Cd rates, which give customers the choice to select the appropriate one to suit their financial goals.
  • Certificates of deposit are one of the safest types of investments.

Further reading:

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1. What is CD ( certificate of deposit)?

A certificate of deposit (CD) is a type of high-yield saving product that the banks or bank credit unions offer to the general public, which allows them to earn a higher interest rate compared with traditional bank saving accounts.

Specifically, customers have the priority to select the term duration of the certificate of deposit (CD) in accordance with their personal finance needs, such as 1-year cd rates, 6 months cd rates, or even 5 years cd rates, which allow them to receive the total amount of initial money deposited plus the interest rate, based on the agreement with bank credit unions.

Customers are not allowed to withdraw or tough during the term of the certificate of deposit (CD) if decided to withdraw, then they have to pay a penalty fine for breaching the agreement.


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Are Banks or Credit unions only offering certificates of deposit (CD)?

Almost all legitimate financial institutions, banks, and credit unions have the legal right to offer high-yield CD savings to customers. Normally online banks offer higher interest rates than traditional banks, and those online banks may charge higher penalty rates for breaching the agreement by taking money out early.

For this reason, the best way to do this is to take time and search around to find the best alternative solution products, which offer the best CD rates, and explore different types of CDs available you can choose in the market. This is because different banks or financial institutions offer different interest rates and penalty rates, which may be slightly higher or lower than the average interest market standard.

For example, online banks or local credit unions could provide a much higher interest rate for creating a CD account, while traditional banks such as Well Fargo CD may offer lower interest rates with fixed normal depositing terms of 3, 6, or even 24 months.

2. How Does Certificate of Deposit (CD) Work?

As I mentioned banks or local credit unions may offer different interest rates based on the customer’s selection of the particular term duration and agreement. Importantly, a certificate of deposit is not the same as traditional saving accounts due to the fact that CD offers much higher interest rates than a saving account and customers are not allowed to withdraw money during the term duration.

When you open a certificate of deposit (CD) with a bank, then there are four main aspects you should take time to consider before moving ahead with the product.

  • Interest rate: is usually fluctuated based on the current market condition after you signed the certificate of deposit with a bank. However, banks or local credit unions are not authorized to change the interest rate, as only a country’s central bank may change the interest rate in accordance with current economic conditions.
  • Terms and duration of deposits: customers have the right to choose the terms or duration of deposit of their money, such as 1-year cd rates, 6 months cd rates, or even 5 years cd rates to suit their financial needs. Normally, the longer CD’s terms you choose the better interest rate, you will receive. However, during the term of deposit, customers are not allowed to withdraw or transfer the money to other bank accounts.
  • Institution: banks and local credit unions are the two main players in the markets, which may offer higher or lower interest rates based on the product guideline and agreement.
  • and Principle and personal agreement: the amount of money you agree to deposit money in the CD’s account. For example, you can deposit a minimum of $1000 or $5000 which is based on the reserved money you have.


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3. Best Types of Certificates of Deposit-CD Rates

Overall, there are around 12 types of certificates of deposit- CD rates- each money market certificate deposit has its own function and benefits in terms of interest rates and the term durations, which give the customers the benefits to choose the right one in accordance with their financial goals.

  • Jumbo CD rates: normally require a large amount of money for creating a certificate deposit, which is around $100,000-$150,000 as a legitimate requirement.
  • Traditional CD rates: require to deposit the amount of money for a fixed period of time, this is a traditional CD rate. It has different types of CD rates such as 1-year cd rates, 6 months cd rates, 2 years cd rates, 3 years cd rates, 4 years cd rates, and even 5 years cd rates.
  • Step-up CD rates: gives you a higher interest rate compared with the traditional one. Unlike other CD rates that require you to renegotiate with the bank to increase the interest rate. With step-up CD rates, it will automatically increase the rate over time during the term of a certificate deposit.
  • Liquid CD rates ( no-penalty CD): allow you to withdraw the money before the term end without any penalty charge, this is because the term and conditions of liquid CD rates normally state you can withdraw money before the due day.
  • Zero-coupon CD rates: with this zero-coupon CD, you will purchase the certificate of deposit at a cheaper price before the end of the term duration. In particular, you pay for cheaper CDs by using zero-coupon, but you will not allow receiving the interest till the end of CD maturity. For example, $2000 is the CD for 10 years, but before the maturity, you may pay $1000 in year 5 and will not receive any interest payment until the end of the term duration.
  • Callable CD rates: the interest rate will be varied based on the money market fluctuations, you may take a risk to receive a higher interest rate over time. On the other hand, banks may reduce the interest rates or may cancel the CD before the mature date based on the economic market conditions.
  • Brokered CD rates: you need to open a CD account with the brokered firm. Normally they pay a higher interest rate compared with traditional banks. However,  those brokered firms may charge higher service fees and a higher penalty applies if you withdraw the money before the CD term duration end.
  • Bump up CD rates: allow customers to renegotiate the term and conditions with the banks in terms of interest rates. Let’s say the duration of CD is 10 years, but you may ask the banks to increase the interest rate based on the current economic market conditions. Notes, only allow getting renegotiated one time.
  • High-yield CD rates:  offers higher interest rates based on the terms and conditions of each financial institution or bank,  because they are competing with each other to get more customers. And, from the customer perspective, we will receive benefit from that tense competition.
  • IRA CD rates: This is the tax benefit because you use a retirement account to open up the IRA CD.
  • Add-on CD rates:  unlike other CD rates that only require a one-time initial deposit to create a certificate of deposit, but add-on CD gives you more advantage and flexibility by adding money to the CD account until the end of the CD term duration.
  • Foreign currency CD rates:  this type of CD uses different types of currencies based on your selection. With this type of CD, you may receive a better return on your investment if the currency you use to create a CD rise in value against the US dollar. However, you end up losing money if the US dollar appreciates the value higher than those foreign currencies.

Read next: Best Books On Stock Market in 2022

4. Certificates of Deposit’s Pros and Cons

Moving to the pros and cons of a certificate of deposit (CD), we will take a step by step to make analysis of the advantages and disadvantages of this high-yield saving investment, which gives you an overview picture of certificates deposit.


  • Better interest rate and higher investment return: than the traditional banks’ savings accounts or money market accounts. This is particularly an ideal solution for those who have surplus cash and do not tough for a short period of time
  • Security and Safety: certificate of deposit is one of the safest types of saving investments, this is because large banks normally get a higher reputation and guarantee to return the initial money and interest at the end of the term.


  • Low investment return: I meant to compare with other assets accumulations such as stocks and bonds, which offer a better return on investment. However, there is a risk involved to invest in stocks.
  • In terms of liquidity: customers are not allowed to withdraw money from their CD account until the end of the mature day. But, if you plan to take money out, then you have to pay the penalty rate.


The content is based on the personal opinion of the author. It is accurate and true based on the best knowledge of the author and his research. Content is for entertainment and informational purposes only and we are not financial advisors, personal counselors, or professional advisors in legal, technical, or business issues. Please consult with your financial advisor or other professional advisors prior to making any important financial decisions

By Jiro Nguyen

Jiro Nguyen is a highly driven and skilled business management professional with an MBA in economics and management. He is also the founder of Jns-millennial.com. Moreover, he has a passion for writing and over 4 years of copywriting experience.

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